DBS: CapitaLand Mall Trust posts ‘marvelous growth’

CapitaLand Integrated Commercial Trust building in Singapore’s Bugis neighborhood.CapitaLand Integrated Commercial Trust building in Singapore’s Bugis neighborhood.

CapitaLand Mall Trust can surprise on the upside, with investors likely to apply higher valuations, DBS said after the REIT reported “marvelous growth” in its first quarter results.

The REIT reported Wednesday its first quarter net property income rose 11.5 percent on-year to S$140.10 million on the acquisition of the 70 percent of Westgate mall it didn’t already own.

DBS said the markets have been “divided” over CapitaLand Mall Trust’s units amid uncertainty over the impact of a surge in new retail supply this year, especially from the opening of the Jewel Changi Airport.

But the bank was more sanguine.

“While we expect some volatility in the east-side malls, we believe that higher contributions from Westgate and Funan will more than compensate for the expected near-term hurdles that Tampines Mall and Bedok Mall, located in the East, may face now,” DBS said in a note Thursday. It added the effect on the malls in the Singapore’s east should normalise in the medium term.

DBS also pointed to high pre-commitment rates for upcoming malls, with Paya Lebar Quarter pre-leasing around 90 percent of its retail mail with strong anchors.

“Apart from Paya Lebar Quarter Mall, we believe most of the other major retail assets coming on stream do not pose a direct competition to the catchment areas of CMT’s malls. We expect consensus to gradually converge to our view over time,” DBS said.

Funan is expected toward the end of this year, with the mall around 90 percent leased and the office portion commitment rates above 92 percent, DBS said.

The bank estimated the REIT offers a 2019 distribution per unit yield of 5 percent and a total potential return in excess of 10 percent.

“As the retail sector bottoms out and new contributions from Funan and Westgate flow in, we believe that investors will accord higher valuations,” DBS said.

It raised its target price to S$2.55 from S$2.44, keeping a Buy call.

CapitaLand Mall Trust units were down 0.42 percent at S$2.38 at 9:41 A.M. SGT.


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